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April 10, 2007
Alrighty, lets get back into the classes.
Today’s class was taught by the principal broker over the brokerage that hosts our school. One of my classmates groaned “gah, he just tells stories and doesn’t even reference the chapter”
She proved correct, as the course was basically just a two hour extended story time covering our Broker’s gradual acquisition of 20+ rental properties since College.
It was pretty interesting, though some of it was rather redundant. The same classmate who had groaned earlier in the class shared her own particular experience with renting.
They had moved into a larger home, and decided to rent out their old one.
This is a brilliant idea, and the best way in my opinion to get started as a real estate investor. She however found herself desperate to fill the vacancy on the old home, possible as a result of trying to rent it at a slow time of year. No one wants to pay two mortgages.
This desperation led them to rent to the first renters they found, who turned out to be heavy drug users, ones who enjoyed knocking holes in the walls and trashing the home.
They had neglected to collect a security deposit, do a credit check (It’s only $20 people!) and had lost tens of thousands as a result. The renters ran off leaving a three month unpaid rent debt, which left my classmate in a rather desperate situation.
Our instructor remarked that most agents DO NOT act on deals that they find. He recommended selling them to favored clients to build goodwill if you weren’t going to take it anyway.
He also remarked that there is a HUGE turnaround on young agents in Utah and asked why we thought that was. I couldn’t resist.
I raised my hand “It’s a very difficult industry for new comers..”
He cut me off “Actually it’s a wonderful, one of the best industries for new agents”
I quipped back “But Brokers take such a huge portion of the commission and…”
Again I was cut off with nervous laughs, and the topics was changed ;-).
We were reminded that it IS ILLEGAL in Utah to manage a property other than up to 6 of your own, without a real estate license.
One useful bit, it is very wise to NOT live in one of your rental units. Doing so will lead to knocks on your door at all hours of the day whenever the tenant has a question or complaint. Management can be a headache.
Class concluded with a sample management agreement, which I will try to scan later. The moral of the many stories shared by our instructor was to always buy with bank’s funds, wait until a home has appreciated, then refinance and repeat.
Never use your own money as a down payment if it can be helped he stressed, it was better to refinance and use the excess cash to help buy the next home.
He advised keeping homes for as long as you could, in order to net the best possible benefit from bank financing. Inflation and tax benefits makes buying as much property as you can afford a very wise investment. If rental income covers your monthly payments, and appreciation allows you to pay down payments, it is possible for practically anyone to purchase several properties and own them outright by the time they retire at 65. Starting at age 20 can easily lead to you being a millionaire at 40.
Our Instructor warned that many agents have been schemed into joining pyramid and ponzi type scams that guarantee a retirement for agents by signing up other agents. This is a problem for many people in Utah.
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April 11th, 2007 at 6:56 am
[…] from Lesson 25, we were told more stories about our instructor’s vast rental experience and actually covered […]